The Rule of Ten to manage Inequality

Recently there has been a hue and cry about the high salary and bonuses that TENsome corporate executives, especially bankers are drawing. The occupy movement that has erupted in many countries around the world represents this anguish of people. New sources of communication make expressing this anguish possible. There is a simple way to fix the problem. It is called the rule of ten here. If adopted such a rule will not only strengthen capitalism, it will also strengthen democracy. Simply stated this rule states that within any corporate or government organization the cumulative annual benefits (that include salary, bonuses, shares and all other benefits) of any individual within that organization shall not exceed ten times the total benefits of the lowest paid individual. This will immediately put a cap to the high bonuses and perks some individuals are enjoying in various organizations. The rule has to be corporation wide not country wide in order to allow corporations to compete.

The less severe version of this rule replaces the lowest salary in the above rule with median or average salary. Average is a better choice since it reduces chances of exploiting some in a company with very low wages.

The basis of this rule is that no individual is less than ten times as capable, hard working or talented than the most capable individual in any organization. In case one is so, one should be in a care home instead. It is only just that the salary structures reflect this reality. Why ten and not nine or eleven? Well some number has to be chosen and a round number is simple to implement. The real and evident reason for these gross inequalities is that those with advantages have exploited their positions to maintain their advantage since the dawn of human civilization. However, the base has got broader with time, from a single King or dictator to at least around one per cent. With further evolution the trend is bound to accelerate. This author too has belonged to the one per cent for most of his life, but if he speaks against it, it is because of his spiritual leanings that regard exploitation of humans by other humans as unfair.

Countries not used to this sort of rule will find it rather extreme, but they can make a beginning by a rule of 20, 30, 40 or 50 or even 100 in in its place to prevent a few individuals from ripping off the voiceless shareholder and the shirts off the back of the poor.

The rule of ten should be seen as a regulation to fix ratios of maximum to minimum wage within organizations, not necessarily in the ratio of ten is to one but any ratio that has been agreed upon, even 100. It prevents senior managers to run away with unlimited compensations

How will such a rule strengthen democracy? If a referendum is to be called for such a law an overwhelming majority shall support it. Any rule or law that is in accordance with the just aspirations or wishes of the people and is workable strengthens democracy. What about the argument being put by some bankers etc. that this will lead to a flight of talent. That is just nonsense.

Such a rule will not lead to a flight of talent. It shall lead to a flight of greed and exploitation instead.

What will happen to the campaign contributions of political candidates if some individuals and corporations are not allowed to get disproportionately rich? No just human society needs campaign contributions that ride on the back of the homeless and the struggling while the likes of Berlusconi have perhaps taken off to their island spa for another bunga bunga party. Quite likely he has enough room for other leaders to join him as other economies around the world collapse under the burden of debt.

It is the opinion of this author that unless the presently prosperous economies of the world take steps towards limiting high executive rip-offs and take care of national debt they are headed to certain economic doom. Current measures as being adopted around the world only kick the can down the road, a road in which the pits get deeper as one moves further.

A year or so ago when the CEO of a Swiss drug major was walking off with a seven million severance package, as approved by a board of directors whose compensations he had approved (it is the you scratch my back, I scratch yours story in corporations) the Swiss public woke up and forced in a new law to prevent this sort of rip offs by companies. The legislators cried foul and the companies cried foul but the public had their way because of the unique sort of democracy the Swiss have. In other countries the public does not have a similar say.

In India the first baby steps towards such a rule have been taken in a new company law that requires companies to list ratios of peak to median salaries.

The rule of ten is much more effective in permitting struggling businesses to revive through across the board salary cuts, or help new businesses to grow, while a minimum wage regulation can kill them, if they are unable to afford the minimum wage

Concluding Remark: Inspired by the original version of this note, that has been posted by the author in several other places (e.g. http://someitemshave.blogspsot.com) the Swiss moved a slightly modified 1:12 rule. It was narrowly defeated. The Swiss and other countries are working on a somewhat more lenient 1:20 rule presently.